CH13: The Foreign Sector Flashcards
How did import substitution impact South Africa?
Helped grow the manufacturing sector by replacing imported consumer goods.
Why do countries trade with each other?
Because no country has all resources; trade allows specialization and mutual benefit.
What is absolute advantage?
When a country can produce more of a good with the same amount of resources.
What is comparative advantage?
When a country can produce a good at a lower opportunity cost than another country.
Who introduced the concept of comparative advantage?
David Ricardo.
What is an import tariff?
A tax imposed on imported goods to protect domestic industries or raise revenue.
What is a specific tariff?
A fixed amount charged per unit of an imported good.
What is an ad valorem tariff?
A tariff based on a percentage of the good’s value.
What is the purpose of a revenue tariff?
To raise government income, especially where no local alternatives exist.
What is a protective tariff?
A tariff aimed at shielding domestic industries from foreign competition.
What are import quotas?
Limits on the quantity of a good that can be imported.
Why might governments subsidize exports?
To help domestic firms compete internationally, though it may provoke retaliation.
What is dumping in international trade?
Selling goods in foreign markets at unfairly low prices.
What is a countervailing duty?
A tariff imposed to offset unfair subsidies or dumping by other countries.
What is the infant industry argument?
New industries should be temporarily protected until they can compete globally.
How do trade barriers protect employment?
By limiting imports, domestic jobs in protected sectors are preserved.
Why are tariffs important for government revenue in developing countries?
Easier to collect than income or property taxes.
What is the risk of trade barriers leading to retaliation?
Trade wars that hurt exporters and reduce global welfare.
How can trade barriers cause inefficiency?
They reduce competitive pressure on local industries to improve.
What is an exchange rate?
The price of one currency in terms of another.
Who demands foreign currency in South Africa?
Importers, investors buying foreign assets, tourists, and speculators.
Who supplies foreign currency in South Africa?
Exporters, foreign tourists, and investors buying SA assets.
What happens to demand for dollars when the dollar becomes cheaper?
Demand increases, as US goods become cheaper in rand.
